Problem 7-17A (Algo) Accounting for uncollectible accounts: two cycles using the percent of revenue allowance method LO 7-1 [The following information applies to the questions displayed below.] The following transactions apply to Jova Company for Year 1, the first year of operation: 1. Issued $10,500 of common stock for cash. 2. Recognized $65,500 of service revenue earned on account. 3. Collected $58,400 from accounts receivable. 4. Paid operating expenses of $35,000. 5. Adjusted accounts to recognize uncollectible accounts expense. Jova uses the allowance method of accounting for uncollectible accounts and estimates that uncollectible accounts expense will be 2 percent of sales on account. The following transactions apply to Jova for Year 2: 1. Recognized $73,000 of service revenue on account. 2. Collected $66,400 from accounts receivable. 3. Determined that $910 of the accounts receivable were uncollectible and wrote them off. 4. Collected $200 of an account that had previously been written off. 5. Paid $48,600 cash for operating expenses. 6. Adjusted the accounts to recognize uncollectible accounts expense for Year 2. Jova estimates uncollectible accounts expense will be 1 percent of sales on account. Required Complete the following requirements for Year 1 and Year 2. Complete all requirements for Year 1 prior to beginning the requirements for Year 2. Reg D2 Income Stmt Req D2 Stmt Req D2 Req D2 Stmt of Changes Balance Sheet of Cash Flows Prepare an income statement for Year 2. JOVA COMPANY Income Statement For the Year Ended Year 2 Service revenue Expenses Operating expenses 48,600 Uncollectible accounts expense 730 73,000 Total expenses Net income (49,330) $ 23,670 Reg D2 Req D2 Stmt Reg D2 Req D2 Stmt Income Stmt of Changes Balance Sheet of Cash Flows Prepare the statement of changes in stockholders' equity for Year 2. JOVA COMPANY Statement of Changes in Stockholders' Equity For the Year Ended Year 2 Beginning common stock $ 10,500 Ending common stock $ 10,500 Beginning retained earnings $ 29,190 Plus: Net income Ending retained earnings 29,190 Total stockholders' equity $ 39,690 Reg D2 Req D2 Stmt Reg D2 Req D2 Stmt Income Stmt of Changes Balance sheet of Cash Flows Prepare the balance sheet for Year 2. JOVA COMPANY Balance Sheet As of December 31, Year 2 Assets 0 $ Total assets Liabilities Stockholders' equity 0 Total stockholders' equity Total liabilities and stockholders' equity $ Req D2 Req D2 Stmt Req D2 Req D2 Stmt Income Stmt of Changes Balance sheet of Cash Flows Prepare the statement of cash flows for Year 2. (Amounts to be deducted should JOVA COMPANY Statement of Cash Flows For the Year Ended Year 2 Cash flows from operating activities: 0 Net cash flow from operating activities Cash flows from investing activities Cash flows from financing activities Net change in cash 0 Ending cash balance $ 0
